A risk-based audit plan is the audit plan in which audit resources and work are deployed and focused based on a high risks areas or accounts as the result of the risks assessment performed by the auditor.
This kind of planning requires the auditor to understand the client’s nature of the business, control the environment, and then put their audit resource and schedule by favorite to the areas with high risks.
This planning will include all the necessary information like audit scope, objective, reporting line, audit schedules, and an audit report. The audit schedule will include all the audit areas with the timeline that the auditor will perform their review.
This schedule results from the risks assessment that the auditor performs at the planning stage. This planning is very important and most audit firms, as well as internal audits, adopt this approach.
Risks based audit plan is important for auditors for two reasons. First, it helps the auditor minimize its risks. As we all know, audit risks are a combination of inherent, control, and detection risks. Detection risk is the risk that control by auditors.
If auditors effectively assess their client’s risks related to financial statements, the auditor will then could tailor the risks audit procedure to detect those risks.
The audit risks will reduce accordingly.